Telsey Advisory Group analyst Dana Telsey reiterated an Outperform rating on the shares of Levi Strauss & Co
The company reported Q3 FY23 adjusted EPS of $0.28 versus $0.40 last year, coming in a penny above the consensus estimate of $0.27.
The analyst said the slight earnings upside was driven by a better-than-expected gross margin result, partially offset by softer revenue and higher expenses.
The analyst added that total revenue declined 0.4% to $1.511 billion, below the market's expectation for growth of 1.8% to $1.544 billion, reflecting low-double-digit growth in Asia and the Other Brands business.
Gross margin contracted 130 bps to 55.6%, better than the consensus of down 220 bps to 54.7% and guidance for a ~200 basis points decline, driven by lower full-price sales, strategic price decreases, and higher product costs, partially offset by favorable channel and geographic mix, lower air freight, and favorable FX.
On the topline, while sales came in a touch light, the analyst remains encouraged by continued strength in the DTC business as well as Asia, helping offset ongoing pressure in the wholesale channel in both North America and Europe.
Given a still uncertain macro environment and choppy consumer spending trends, management is taking a more cautious view of the balance of the year, leading to a moderated guidance, noted the analyst.
The analyst believes LEVI is well-positioned to exit FY23 in a stronger position with momentum in the DTC business and signs of improvement in wholesale that can provide a runway for growth in FY24.
Price Action: LEVI shares are trading lower by 2.54% at $12.88 on the last check Friday.
